April 06, 2007
Be a Banker to the Poor
Posted by Fred Tung

Kiva_logoleafy2 Microfinance has received lots of attention since last year's Nobel Peace Prize was awarded to Muhammad Yunus for his work with the Grameen Bank in Bangladesh.  If you want to get in on the act, Kiva.org is a website that lets you do that.  Kiva links up small entrepreneurs in developing countries with you and me.  It allows us to lend  (in $25 increments via PayPal) to small businesses that need a few hundred dollars to expand--a food stall owner who wants to increase her inventory so she can make fewer time-consuming trips to the market each week; or a woman who makes cheese and other milk products who wants to buy her own cow.

Kiva uses local partners--microfinance organizations--to vet the borrowers.  Our loans are interest-free, though Kiva and the local partners charge interest in order to make the program sustainable.  Kiva admits that microfinance is expensive; charging interest assures the continuity of the program.  One hundred percent of the loan proceeds go to the borrower, so the only way the program pays for itself is through interest charges.  This is a nice feature, since it puts all the capital to work and improves the incentives of the local partners to screen borrowers and monitor loans.

Kiva provides pictures and some background information about each borrower.  It also has a bit of Friendster-ism in it.  You can see pictures of each borrower's existing Kiva lenders, as well as each Kiva lender's portfolio of Kiva loans.  The home page also has a "featured lender."  Most lenders are from the US, with some from Europe as well.

Kiva was recently highlighted in a NYT story by Nick Kristof (TimesSelect, which you can get for free with a ".edu" email address). 

Economic Development, Entrepreneurs, Finance, Globalization/Trade | Bookmark

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